Setting the standard for global cryptocurrency regulation

In October, the European Union finalized the text of its landmark regulatory framework for markets in crypto assets (MiCA), but not without significant pressure from European Commissioner Mairead McGuinness, who is responsible for financial services, financial stability and the Capital Markets Union.

The broad rules, which would apply to crypto service providers and digital asset issuers seeking to operate in the trading bloc’s 27 member states, were introduced in 2020 by the European Commission, the EU’s executive body responsible for proposing new rules. As the EU’s most senior financial services official, McGuinness deftly pushed the framework through the bloc’s complex legislative process before it was finalized. German legislator Stefan Berger saw the progress of work on the bill (procedural and substantive) in the European Parliament.

“The EU is one of the first major jurisdictions in the world to develop a comprehensive regulatory framework for cryptocurrencies. MiCA will protect consumers, market integrity and financial stability. This will include cryptocurrency exchanges, wallet providers or cryptocurrency issuers under EU supervision,” the Commission said in an email to CoinDesk.

MiCA was originally inspired by Facebook’s (now Meta) now-defunct Libra (later Diem) project, which aimed to create a stablecoin – a digital currency stabilized against the value of other assets – which regulators said could threaten nations’ sovereignty. However, as the EU legislative process progressed, the act took on a new life. It is now hailed as the standard rulebook for crypto regulation on a global scale.

McGuinness earlier this year called for a global agreement to regulate cryptocurrencies to protect investors. In October, she called on the United States to create its own cryptocurrency rules.

She also said she wanted to make sure “no product goes unregulated.” While MiCA covers most crypto assets, it has left some ambiguity on how to treat non-fungible tokens (NFTs), which the Commission says it would include in subsequent MiCA regulations if lawmakers asked for it.

As concerns emerged that cryptocurrencies would be used to avoid sanctions in the wake of Russia’s invasion of Ukraine, McGuinness urged EU lawmakers to speed up and finalize the MiCA agreement.

“What I want to tell you, and what I can tell you, is that the MiCA rules will be the right tool to address concerns about consumer protection, market integrity and financial stability. This is a matter of extreme urgency given recent events,” McGuinness said at the time.

The dramatic collapse of cryptocurrency exchange giant FTX in November sent shockwaves across the industry, and regulators have mobilized with renewed vigor to get a handle on the space. Commenting on the disaster, McGuinness said the notion that cryptocurrencies could exist without regulation was a “science fiction idea.”

“Because as we know, money, if not properly regulated, can do terrible damage,” McGuinness said during a speech at the forum on November 24.

The EU, thanks to MiCA, remains relatively calm in the wake of the FTX debacle, at least according to Berger, who argues that the framework’s stringent standards could have prevented such a collapse.

“If FTX had MiCA regulations, today would be a completely different day. So it’s clear to me that (the MiCA rules act) as a bulwark against the developments that led to the Lehman moment – and FTX was the Lehman moment – for the cryptocurrency world,” Berger said at a November conference.

Berger, who led the bill through lawmakers’ attempts to add provisions that could effectively ban energy-intensive cryptocurrencies in the EU, also played a key role in finalizing MiCA this year.

Until this framework comes into force in 2024, it is not really clear how it would block such cases in practice, especially for companies like FTX that were founded in the Bahamas – well outside EU jurisdiction.

EU lawmakers are scheduled to vote on MiCA in February 2023.